Does Morgan Stanley Have Upside Potential?

With shares of Morgan Stanley (NYSE:MS) trading at around $21.33, is MS an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

Morgan Stanley has been extremely volatile over the past two years. Unfortunately, it’s impossible to predict where this stock is likely to go next. However, we can take a quick look at the situation and do our best to form an opinion.

The following news has the potential to send shockwaves throughout the industry, which would affect Morgan Stanley. Senators Brown and Vitter are interested in a bill where banks holding more capital wouldn’t require a bailout. The basics of this bill are that all United States banks would hold 10 percent capital against assets, an extra 5 percent for banks with more than $500 billion in assets, and a final rule that feds can increase the level based on risk. The concern is that these rules would potentially limit the banks abilities to lend to businesses. That, in turn, would reduce job creation. With fewer jobs, unemployment rates increase, and we fall back into recession. Would it turn out that way? Nobody knows for sure, but that’s the concern.

Morgan Stanley also recently received a downgrade to Neutral from Credit Suisse. This was based primarily on a run-up in the stock price and limited upside potential. Credit Suisse stated: “We advocate a neutral stance today absent a further pickup in the operating environment, meaningful operating leverage and/or faster excess capital returns.”

Morgan Stanley has been reducing risk, which should be look at as a positive. However, in today’s economic environment, not much makes sense. It seems as though high risk is once again the place to be. We’ll cover this more in the Trends section. For now, let’s take a look at the chart below, which compares fundamentals for Morgan Stanley, The Goldman Sachs Group (NYSE:GS), and JPMorgan Chase & Co. (NYSE:JPM). Morgan Stanley has a market cap of $41.81 billion, Goldman Sachs has a market cap of $68.48 billion, and JPMorgan has a market cap of $182.19 billion.

MS

GS

JPM

Trailing P/E

N/A

10.09

9.21

Forward P/E

8.36

9.46

8.24

Profit Margin

0.26%

21.88%

23.22%

ROE

1.08%

10.10%

10.98%

Operating Cash Flow

$24.55 Billion

$12.88 Billion

$25.08 Billion

Dividend Yield

0.90%

1.40%

3.20%

Short Position

1.20%

1.50%

1.20%

Let’s take a look at some more important numbers prior to forming an opinion on this stock…